On The Principles of Political Economy and Taxation

Chapter 5: On Wages

Labour, like all other things which are purchased and sold,
and which may be increased or diminished in quantity, has its
natural and its market price. The natural price of labour is that
price which is necessary to enable the labourers, one with
another, to subsist and to perpetuate their race, without either
increase or diminution.

The power of the labourer to support himself, and the family
which may be necessary to keep up the number of labourers, does
not depend on the quantity of money which he may receive for
wages, but on the quantity of food, necessaries, and conveniences
become essential to him from habit, which that money will
purchase. The natural price of labour, therefore, depends on the
price of the food, necessaries, and conveniences required for the
support of the labourer and his family. With a rise in the price
of food and necessaries, the natural price of labour will rise;
with the fall in their price, the natural price of labour will
fall.

With the progress of society the natural price of labour has
always a tendency to rise, because one of the principal
commodities by which its natural price is regulated, has a
tendency to become dearer, from the greater difficulty of
producing it. As, however, the improvements in agriculture, the
discovery of new markets, whence provisions may be imported, may
for a time counteract the tendency to a rise in the price of
necessaries, and may even occasion their natural price to fall,
so will the same causes produce the correspondent effects on the
natural price of labour.

The natural price of all commodities, excepting raw produce
and labour, has a tendency to fall, in the progress of wealth and
population; for though, on one hand, they are enhanced in real
value, from the rise in the natural price of the raw material of
which they are made, this is more than counterbalanced by the
improvements in machinery, by the better division and
distribution of labour, and by the increasing skill, both in
science and art, of the producers.

The market price of labour is the price which is really paid
for it, from the natural operation of the proportion of the
supply to the demand; labour is dear when it is scarce, and cheap
when it is plentiful. However much the market price of labour may
deviate from its natural price, it has, like commodities, a
tendency to conform to it.

It is when the market price of labour exceeds its natural
price, that the condition of the labourer is flourishing and
happy, that he has it in his power to command a greater
proportion of the necessaries and enjoyments of life, and
therefore to rear a healthy and numerous family. When, however,
by the encouragement which high wages give to the increase of
population, the number of labourers is increased, wages again
fall to their natural price, and indeed from a re-action
sometimes fall below it.

When the market price of labour is below its natural price,
the condition of the labourers is most wretched: then poverty
deprives them of those comforts which custom renders absolute
necessaries. It is only after their privations have reduced their
number, or the demand for labour has increased, that the market
price of labour will rise to its natural price, and that the
labourer will have the moderate comforts which the natural rate
of wages will afford.

Notwithstanding the tendency of wages to conform to their
natural rate, their market rate may, in an improving society, for
an indefinite period, be constantly above it; for no sooner may
the impulse, which an increased capital gives to a new demand for
labour be obeyed, than another increase of capital may produce
the same effect; and thus, if the increase of capital be gradual
and constant, the demand for labour may give a continued stimulus
to an increase of people.

Capital is that part of the wealth of a country which is
employed in production, and consists of food, clothing, tools,
raw materials, machinery, &c. necessary to give effect to labour.
Capital may increase in quantity at the same time that its
value rises. An addition may be made to the food and clothing of
a country, at the same time that more labour may be required to
produce the additional quantity than before; in that case not
only the quantity, but the value of capital will rise.
Or capital may increase without its value increasing, and
even while its value is actually diminishing; not only may an
addition be made to the food and clothing of a country, but the
addition may be made by the aid of machinery, without any
increase, and even with an absolute diminution in the
proportional quantity of labour required to produce them. The
quantity of capital may increase, while neither the whole
together, nor any part of it singly, will have a greater value
than before, but may actually have a less.

In the first case, the natural price of labour, which always
depends on the price of food, clothing, and other necessaries,
will rise; in the second, it will remain stationary, or fall; but
in both cases the market rate of wages will rise, for in
proportion to the increase of capital will be the increase in the
demand for labour; in proportion to the work to be done will be
the demand for those who are to do it.

In both cases too the market price of labour will rise above
its natural price; and in both cases it will have a tendency to
conform to its natural price, but in the first case this
agreement will be most speedily effected. The situation of the
labourer will be improved, but not much improved; for the
increased price of food and necessaries will absorb a large
portion of his increased wages; consequently a small supply of
labour, or a trifling increase in the population, will soon
reduce the market price to the then increased natural price of
labour.

In the second case, the condition of the labourer will be
very greatly improved; he will receive increased money wages,
without having to pay any increased price, and perhaps even a
diminished price for the commodities which he and his family
consume; and it will not be till after a great addition has been
made to the population, that the market price of labour will
again sink to its then low and reduced natural price.

Thus, then, with every improvement of society, with every
increase in its capital, the market wages of labour will rise;
but the permanence of their rise will depend on the question,
whether the natural price of labour has also risen; and this
again will depend on the rise in the natural price of those
necessaries on which the wages of labour are expended.

It is not to be understood that the natural price of labour,
estimated even in food and necessaries, is absolutely fixed and
constant. It varies at different times in the same country, and
very materially differs in different countries.(14*) It
essentially depends on the habits and customs of the people. An
English labourer would consider his wages under their natural
rate, and too scanty to support a family, if they enabled him to
purchase no other food than potatoes, and to live in no better
habitation than a mud cabin; yet these moderate demands of nature
are often deemed sufficient in countries where 'man's life is
cheap', and his wants easily satisfied. Many of the conveniences
now enjoyed in an English cottage, would have been thought
luxuries at an earlier period of our history.

From manufactured commodities always falling, and raw
produce always rising, with the progress of society, such a
disproportion in their relative value is at length created, that
in rich countries a labourer, by the sacrifice of a very small
quantity only of his food, is able to provide liberally for all
his other wants.

Independently of the variations in the value of money, which
necessarily affect money wages, but which we have here supposed
to have no operation, as we have considered money to be uniformly
of the same value, it appears then that wages are subject to a
rise or fall from two causes:

1st. The supply and demand of labourers.
2dly. The price of the commodities on which the wages of
labour are expended.

In different stages of society, the accumulation of capital,
or of the means of employing labour, is more or less rapid, and
must in all cases depend on the productive powers of labour. The
productive powers of labour are generally greatest when there is
an abundance of fertile land: at such periods accumulation is
often so rapid, that labourers cannot be supplied with the same
rapidity as capital.

It has been calculated, that under favourable circumstances
population may be doubled in twenty-five years; but under the
same favourable circumstances, the whole capital of a country
might possibly be doubled in a shorter period. In that case,
wages during the whole period would have a tendency to rise,
because the demand for labour would increase still faster than
the supply.

In new settlements, where the arts and knowledge of
countries far advanced in refinement are introduced, it is
probable that capital has a tendency to increase faster than
mankind: and if the deficiency of labourers were not supplied by
more populous countries, this tendency would very much raise the
price of labour. In proportion as these countries become
populous, and land of a worse quality is taken into cultivation,
the tendency to an increase of capital diminishes; for the
surplus produce remaining, after satisfying the wants of the
existing population, must necessarily be in proportion to the
facility of production, viz. to the smaller number of persons
employed in production. Although, then, it is probable, that
under the most favourable circumstances, the power of production
is still greater than that of population, it will not long
continue so; for the land being limited in quantity, and
differing in quality, with every increased portion of capital
employed on it, there will be a decreased rate of production,
whilst the power of population continues always the same.
In those countries where there is abundance of fertile land,
but where, from the ignorance, indolence, and barbarism of the
inhabitants, they are exposed to all the evils of want and
famine, and where it has been said that population presses
against the means of subsistence, a very different remedy should
be applied from that which is necessary in long settled
countries, where, from the diminishing rate of the supply of raw
produce, all the evils of a crowded population are experienced.
In the one case, the evil proceeds from bad government, from the
insecurity of property, and from a want of education in all ranks
of the people. To be made happier they require only to be better
governed and instructed, as the augmentation of capital, beyond
the augmentation of people, would be the inevitable result. No
increase in the population can be too great, as the powers of
production are still greater. In the other case, the population
increases faster than the funds required for its support. Every
exertion of industry, unless accompanied by a diminished rate of
increase in the population, will add to the evil, for production
cannot keep pace with it.

With a population pressing against the means of subsistence,
the only remedies are either a reduction of people, or a more
rapid accumulation of capital. In rich countries, where all the
fertile land is already cultivated, the latter remedy is neither
very practicable nor very desirable, because its effect would be,
if pushed very far, to render all classes equally poor. But in
poor countries, where there are abundant means of production in
store, from fertile land not yet brought into cultivation, it is
the only safe and efficacious means of removing the evil,
particularly as its effect would be to elevate all classes of the
people.

The friends of humanity cannot but wish that in all
countries the labouring classes should have a taste for comforts
and enjoyments, and that they should be stimulated by all legal
means in their exertions to procure them. There cannot be a
better security against a superabundant population. 1 In those
countries, where the labouring classes have the fewest wants, and
are contented with the cheapest food, the people are exposed to
the greatest vicissitudes and miseries. They have no place of
refuge from calamity; they cannot seek safety in a lower station;
they are already so low, that they can fall no lower. On any
deficiency of the chief article of their subsistence, there are
few substitutes of which they can avail themselves, and dearth to
them is attended with almost all the evils of famine.

In the natural advance of society, the wages of labour will
have a tendency to fall, as far as they are regulated by supply
and demand; for the supply of labourers will continue to increase
at the same rate, whilst the demand for them will increase at a
slower rate. If, for instance, wages were regulated by a yearly
increase of capital, at the rate of 2 per cent, they would fall
when it accumulated only at the rate of 1 1/2 per cent. They
would fall still lower when it increased only at the rate of 1,
or 1/2 per cent, and would continue to do so until the capital
became stationary, when wages also would become stationary, and
be only sufficient to keep up the numbers of the actual
population. I say that, under these circumstances, wages would
fall, if they were regulated only by the supply and demand of
labourers; but we must not forget, that wages are also regulated
by the prices of the commodities on which they are expended.
As population increases, these necessaries will be
constantly rising in price, because more labour will be necessary
to produce them. If, then, the money wages of labour should fall,
whilst every commodity on which the wages of labour were expended
rose, the labourer would be doubly affected, and would be soon
totally deprived of subsistence. Instead, therefore, of the money
wages of labour falling, they would rise; but they would not rise
sufficiently to enable the labourer to purchase as many comforts
and necessaries as he did before the rise in the price of those
commodities. If his annual wages were before £24, or six quarters
of corn when the price was £4 per quarter, he would probably
receive only the value of five quarters when corn rose to £5 per
quarter. But five quarters would cost £25; he would therefore
receive an addition in his money wages, though with that addition
he would be unable to furnish himself with the same quantity of
corn and other commodities, which he had before consumed in his
family.

Notwithstanding, then, that the labourer would be really
worse paid, yet this increase in his wages would necessarily
diminish the profits of the manufacturer; for his goods would
sell at no higher price, and yet the expense of producing them
would be increased. This, however, will be considered in our
examination into the principles which regulate profits.
It appears, then, that the same cause which raises rent,
namely, the increasing difficulty of providing an additional
quantity of food with the same proportional quantity of labour,
will also raise wages; and therefore if money be of an unvarying
value, both rent and wages will have a tendency to rise with the
progress of wealth and population.

But there is this essential difference between the rise of
rent and the rise of wages. The rise in the money value of rent
is accompanied by an increased share of the produce; not only is
the landlord's money rent greater, but his corn rent also; he
will have more corn, and each defined measure of that corn will
exchange for a greater quantity of all other goods which have not
been raised in value. The fate of the labourer will be less
happy; he will receive more money wages, it is true, but his corn
wages will be reduced; and not only his command of corn, but his
general condition will be deteriorated, by his finding it more
difficult to maintain the market rate of wages above their
natural rate. While the price of corn rises 10 per cent, wages
will always rise less than 10 per cent, but rent will always rise
more; the condition of the labourer will generally decline, and
that of the landlord will always be improved.

When wheat was at £4 per quarter, suppose the labourer's
wages to be £24 per annum, or the value of six quarters of wheat,
and suppose half his wages to be expended on wheat, and the other
half, or £12, on other things. He would receive

£24 14s.
£25 10s.
£26 8s.
£27 8s. 6d.

when wheat was at

£4 4s. 8d.
£4 10s.
£4 16s.
£5 2s. 10d.

or the value of

5.83 qrs.
5.66 qrs.
5.50 qrs.
5.33 qrs.

He would receive these wages to enable him to live just as
well, and no better, than before; for when corn was at £4 per
quarter, he would expend for three quarters of corn, at £4 per
quarter................. £12
and on other thing ..... £12
.....................£24

When wheat was £4 4s. 8d., three quarters, which he and his
family consumed, would cost him... £12 14s.
other things not altered in price... £12
..................................£24 14s.

When at £4 10s., three quarters of wheat would cost.. £13 10s.
and other things ........................................... £12.
...........................................................£25 10s.

When at £4 16s., three quarters of wheat... £14 8s.
Other things........................................£12
.................................................£26 8s.

When at £5 2s. 10d. three quarters of wheat would cost £15 8s.
6d.
Other things ................................................£12
.........................................................£27 8s.
6d.

In proportion as corn became dear, he would receive less
corn wages, but his money wages would always increase, whilst his
enjoyments, on the above supposition, would be precisely the
same. But as other commodities would be raised in price in
proportion as raw produce entered into their composition, he
would have more to pay for some of them. Although his tea, sugar,
soap, candles, and house rent, would probably be no dearer, he
would pay more for his bacon, cheese, butter, linen, shoes, and
cloth; and therefore, even with the above increase of wages, his
situation would be comparatively worse. But it may be said that I
have been considering the effect of wages on price, on the
supposition that gold, or the metal from which money is made, is
the produce of the country in which wages varied; and that the
consequences which I have deduced agree little with the actual
state of things, because gold is a metal of foreign production.
The circumstance, however, of gold being a foreign production,
will not invalidate the truth of the argument, because it may be
shewn, that whether it were found at home, or were imported from
abroad, the effects ultimately and, indeed, immediately would be
the same.

When wages rise, it is generally because the increase of
wealth and capital have occasioned a new demand for labour, which
will, infallibly be attended with an increased production of
commodities. To circulate these additional commodities, even at
the same prices as before, more money is required, more of this
foreign commodity from which money is made, and which can only be
obtained by importation. Whenever a commodity is required in
greater abundance than before, its relative value rises
comparatively with those commodities with which its purchase is
made. If more hats were wanted, their price would rise, and more
gold would be given for them. If more gold were required, gold
would rise, and hats would fall in price, as a greater quantity
of hats and of all other things would then be necessary to
purchase the same quantity of gold. But in the case supposed, to
say that commodities will rise, because wages rise, is to affirm
a positive contradiction; for we first say that gold will rise in
relative value in consequence of demand, and secondly, that it
will fall in relative value because prices will rise, two effects
which are totally incompatible with each other. To say that
commodities are raised in price, is the same thing as to say that
money is lowered in relative value; for it is by commodities that
the relative value of gold is estimated. If then all commodities
rose in price, gold could not come from abroad to purchase those
dear commodities, but it would go from home to be employed with
advantage in purchasing the comparatively cheaper foreign
commodities. It appears, then, that the rise of wages will not
raise the prices of commodities, whether the metal from which
money is made be produced at home or in a foreign country. All
commodities cannot rise at the same time without an addition to
the quantity of money. This addition could not be obtained at
home, as we have already shewn; nor could it be imported from
abroad. To purchase any additional quantity of gold from abroad,
commodities at home must be cheap, not dear. The importation of
gold, and a rise in the price of all home-made commodities with
which gold is purchased or paid for, are effects absolutely
incompatible. The extensive use of paper money does not alter
this question, for paper money conforms, or ought to conform, to
the value of gold, and therefore its value is influenced by such
causes only as influence the value of that metal.

These then are the laws by which wages are regulated, and by
which the happiness of far the greatest part of every community
is governed. Like all other contracts, wages should be left to
the fair and free competition of the market, and should never be
controlled by the interference of the legislature.

The clear and direct tendency of the poor laws, is in direct
opposition to these obvious principles: it is not, as the
legislature benevolently intended, to amend the condition of the
poor, but to deteriorate the condition of both poor and rich;
instead of making the poor rich, they are calculated to make the
rich poor; and whilst the present laws are in force, it is quite
in the natural order of things that the fund for the maintenance
of the poor should progressively increase, till it has absorbed
all the net revenue of the country, or at least so much of it as
the state shall leave to us, after satisfying its own never
failing demands for the public expenditure.(15*)

This pernicious tendency of these laws is no longer a
mystery, since it has been fully developed by the able hand of Mr
Malthus; and every friend to the poor must ardently wish for
their abolition. Unfortunately, however, they have been so long
established, and the habits of the poor have been so formed upon
their operation, that to eradicate them with safety from our
political system, requires the most cautious and skilful
management. It is agreed by all who are most friendly to a repeal
of these laws, that if it be desirable to prevent the most
overwhelming distress to those for whose benefit they were
erroneously enacted, their abolition should be effected by the
most gradual steps.

It is a truth which admits not a doubt, that the comforts
and well-
being of the poor cannot be permanently secured without some
regard on their part, or some effort on the part of the
legislature, to regulate the increase of their numbers, and to
render less frequent among them early and improvident marriages.
The operation of the system of poor laws has been directly
contrary to this. They have rendered restraint superfluous, and
have invited imprudence, by offering it a portion of the wages of
prudence and industry.(16*)

The nature of the evil points out the remedy. By gradually
contracting the sphere of the poor laws; by impressing on the
poor the value of independence, by teaching them that they must
look not to systematic or casual charity, but to their own
exertions for support, that prudence and forethought are neither
unnecessary nor unprofitable virtues, we shall by degrees
approach a sounder and more healthful state.

No scheme for the amendment of the poor laws merits the
least attention, which has not their abolition for its ultimate
object; and he is the best friend to the poor, and to the cause
of humanity, who can point out how this end can be attained with
the most security, and at the same time with the least violence.
It is not by raising in any manner different from the present,
the fund from which the poor are supported, that the evil can be
mitigated. It would not only be no improvement, but it would be
an aggravation of the distress which we wish to see removed, if
the fund were increased in amount, or were levied according to
some late proposals, as a general fund from the country at large.
The present mode of its collection and application has served to
mitigate its pernicious effects. Each parish raises a separate
fund for the support of its own poor. Hence it becomes an object
of more interest and more practicability to keep the rates low,
than if one general fund were raised for the relief of the poor
of the whole kingdom. A parish is much more interested in an
economical collection of the rate, and a sparing distribution of
relief, when the whole saving will be for its own benefit, than
if hundreds of other parishes were to partake of it.

It is to this cause, that we must ascribe the fact of the
poor laws not having yet absorbed all the net revenue of the
country; it is to the rigour with which they are applied, that we
are indebted for their not having become overwhelmingly
oppressive. If by law every human being wanting support could be
sure to obtain it, and obtain it in such a degree as to make life
tolerably comfortable, theory would lead us to expect that all
other taxes together would be light compared with the single one
of poor rates. The principle of gravitation is not more certain
than the tendency of such laws to change wealth and power into
misery and weakness; to call away the exertions of labour from
every object, except that of providing mere subsistence; to
confound all intellectual distinction; to busy the mind
continually in supplying the body's wants; until at last all
classes should be infected with the plague of universal poverty.
Happily these laws have been in operation during a period of
progressive prosperity, when the funds for the maintenance of
labour have regularly increased, and when an increase of
population would be naturally called for. But if our progress
should become more slow; if we should attain the stationary
state, from which I trust we are yet far distant, then will the
pernicious nature of these laws become more manifest and
alarming. and then, too, will their removal be obstructed by many
additional difficulties.